MGMT200 Chapter #20

The Sherman Act

enacted in 1890 in response to the unpopularity of large business organizations - the major sections of the Sherman Act are so broad that one could find almost any business activity to be illegal

The Federal Trade Commissions Act

enacted in 1914 establishing the FTC as an agency to investigate and enforce violations of antitrust laws - the Act provides for the structure, powers and procedures of the FTC but also provides a major addition to antitrust law: unfair methods of competition (Sec 5)

The Clayton Act

enacted in 1914, was added to the Sherman Act - the Act is intended to stop a business practice early in its use to prevent a firm from becoming a monopoly by making practices that "substantially lessen competition or tend to create a monopoly" illegal

Robinson-Patman Act

enacted in1936, amending the Clayton Act. state that it shall be unlawful for any person engaged in commerce to discriminate in price between different purchasers of commodities of like grade and quality, where the effect of such discrimination may be substantially to lessen competition or tend to create a monopoly in any line of commerce

The Clayton Act Exemption

exempts some activities of nonprofit organizations and of agricultural, fishing and other cooperatives

The McCarran-Ferguson Act

exempts the insurance industry from federal antirust laws as long as the states regulate insurance

Information Sharing

illegal if can prove that 1. defendants engaged in information exchanges that would be deemed anticompetitive and 2. such activities did in fact have an anticompetitive effect on the market - also important to factor in whether the information was made publicly available or not

vertical price fixing

involve agreements between a manufacturer, its wholesalers, its distributors or other suppliers and the retailers that sell the product to consumers

predatory bidding

involves the exercise of market power on the buy side or input side of the market. In a predatory bidding scheme, a purchaser of inputs "bids up the market price of a critical input to such high levels that rival buyers cannot survive"

Merger

involves two or more firms coming together to form a new firm

merger guidelines

issued by the DOJ to help businesses and regulators assess the antitrust implications of a merge. The guidelines discuss factors that are considered in determining whether a merger will likely be challenged

vertical nonprice constraints

manufacturers frequently impose nonprice restraints on their distributors and retailers. Scuh vertical arrangements often take the form of territorial or customer restrictions on the sale of the manufacturer's products.

per se rule

means that certain business agreements or activities automatically are held illegal if found to exist (ex price fixing)

rule of reason

means that the court looks at the facts surrounding business practices before deciding whether it helps or hurst competition. The court considers such factors as the business reasons for the restraint, the position in an industry of a firm accused of a restraint, and the structure of the industry.

when mergers are allowed

merger guidelines take into consideration that a major reason to approve a merger is that it enhances efficiency in the market, benefiting consumers by a better allocation of resources

National Labor Relations Act

most labor union's activities are exempt - this act protects collective bargaining to set conditions of employment

failing firm defense

must establish that 1. the firm being acquired is not likely to survive without the merger 2. neither the firm has any other prospective buyers or, if there are other buyers, the acquiring firm affects competition the least 3. other alternatives for saving the firm have been tried but have not succeeded

boycott

occurs when a group conspires to prevent the carrying on of a business or to harm a busines. It can be promoted by any group- consumers, unions , retailers, wholesalers or suppliers- who when acting together, inflict economic damage on a business - the boycott is used to force compliance with a price-fixing scheme or some restraint of trade

horizontal restraint of trade

occurs when the businesses involved operate at the same level of the market and generally in the same market

vertical maximum price fixing

some years ago, the supreme court held that some price fixing in vertical relationships is acceptable. The supreme court upheld the maximum price controls, noting that low prices benefit consumers regardless of how the prices were set

Enforcement of Clayton Act

the Department of Justice or private parties may bring civil proceedings under the Clayton Act, but the normal procedure has been for the FTC to issue cease and desist orders prohibiting further violation

market power

the ability of one or more firms profitability to maintain prices about competitive levels for a significant period of time

interbrand competition

the competition among manufacturers selling different brands of the same type of product

intrabrand competition

the competition among retailers selling the same brand

potential competitors

the possibility that two companies can become competitors may be enough to stop a merger (Clorox example)

geographic market

the relevant area may be one city or may be the nation. Therefore, in determining the relevant market, the courts and antitrust authorities take into account the appropriate product and geographic markets

Dr. Miles Case

the supreme court announced a basic rule about RPM. It stated that once a producer or supplier sells a product to a retailer, it could not control the price the retailer charges consumers. - it cannot fix the price of future sales

rule of reason applied to tie-in cases

the supreme court has held that tie-ins meet a rule of reason test so long as competitive alternatives exist. That is, if the tie-in creates a monopoly when there are no or few good alternatives, it is likely to be illegal

antitrust

the word comes from Standard Oil, which was organized in the form of trust.

the Noerr-Pennington Doctrine

under this, lobbying to influence legislation is not illegal

Enforcement of Sherman Act

violations of the Sherman Act carry the most severe penalties of antitrust statutes - violations can be criminal felonies - private parties or the government can seek injunctive relief under the act - private parties harmed by a violation of the Sherman Act can sue for treble damages

price fixing

when firms sell the same product and agree to fix the price - price fixing has usually been held to be the worst violation of antitrust laws

price discrimination

when the same product is sold to different buyers at different prices

horizontal merger

when two firms were competitors before they merged - Standard Oil is one of the most famous merger decisions

product market

"in any line of commerce" refers to the particular product market in which the firms operate

unfair methods of competition

"unfair methods of competition in or affecting commerce, and unfair or deceptive acts or practices in commerce, are hereby declared unlawful" - has been interpreted by courts as any business activity that may tend to create a monopoly by unfairly eliminating or excluding competitors from the marketplace

The Export Trading Company Act

(exemption) allows sellers of exports to receive limited antitrust immunity. For example, a group of domestic producers may be allowed to join together to improve their ability to sell their products in other countries

The Parker Doctrine

(exemption) or state action doctrine, allows state governments to restrict competition in industries such as public utilities (cable television), professional services and public transportation. - Courts held that for the doctrine to protect parties from antitrust actions, the state must play a "substantial role in determining the specifics of the economic policy"

monopolization

- antitrust law has been built on many court cases over the years - the courts usually consider the structure of a market and the nature of the behavior that is attacked - the focus of the law is on business practices that can lead to a monopoly - the concern is to protect competition in a given market, not to protect individual competitors who complain about another competitors behavior.

Remedies Available

- restrain a company or individuals from certain conduct - force a company to sell part of its assets (break up the company) - force a company to let others use its patents or facilities (licensing) - cancel or modify existing business contracts

Enforcement of FTC Act

-violations of the FTC Act carry a variety of penalties - it is much easier for the FTC to bring administrative actions against a company than for the justice department to bring a criminal suit under the Sherman Act

3 distinct elements of monopolization

1. the defendant has engaged in predatory or anticompetitive conduct 2. with a specific intent to monopolize 3. and a danger probability of achieving monopoly power

Vertical Restraint tying guidelines

1. the seller has market power in the tying product 2. tied and tying products are separate 3. there is evidence of substantial adverse effect in the tied product market

cartel

a collection of rival firms that come together by some form of agreement in an attempt to restrain trade by restricting output and raising prices (Organization of Petroleum Exporting Countries)

predatory pricing

a firm attempts to undercut another firm and then monopolize the market

market share

a firm's market share refers to the percentage of the relevant market controlled by the firm

territorial restrictions

a horizontal market division occurs when firms competing at the same level of business reach an agreement to divide the market on geographic or other terms. - each firm can then exercise monopoly power within its region

cost justification

a key defense for firms charged with violating the Robinson-Patman act is to show a cost justification for different prices charged in different markets to different buyers. - transportation costs

the power buyer defense

a merger that increases concentration to high levels can be defended by showing that the firm's customers are sophisticated and powerful buyers. - if the court finds that powerful buyers have sufficient bargaining power to ensure that the merged firm will be unable to change monopoly prices, the merger might be allowed

vertical minimum price fixing

after 96 years, the supreme court limited the rule from the Dr. Miles case holding that vertical minimum price fixing, or RPM, was no longer per se illegal. - when a manufacturer imposes resale prices, such as retail prices to be set by stores on certain products, the courts look to see if the practice in a particular case is destructive to competition or not.

territorial allocations

agreements intended to provide horizontal customer allocations

conspiracy to restrict information

although the courts have indicated that it is generally legal to share price info in an open manner, and it is illegal to share information secretly among competitors or for the purpose of constructing a common price list for competitors, it may also be illegal to band together to restrict certain non-price information

resale price maintenance (RPM)

an agreement between a manufacturer, a supplier and retailers of a product under which the retailers agree to sell the product at no less than the minimum price - one purpose of these arrangements is to prevent retailers from cutting the price of brand-name product

tying arrangement or tie-in sale

an agreement by a party to sell one product (the tying product) but only on the condition that the buyer also purchases a different (complementary or tied) product, or at least agrees that he will not purchase that product from another supplier

meeting competition

another defense that may be used...a firm cuts its price in response to a competitors cutting it's prices firm

premerger notification

before firms merge, the Hart-Scott Rodino Antitrust Improvements Act requires the firms to notify the Antitrust Division of the Department of Justice or the FTC at least one month before the merger - the notification requires a filing fee

vertical restraint of trade

concerns relationships between buyers and sellers, such as between the manufacturer and its wholesalers and retailers. - how firms deal with each up and down of the business chain -vertical business arrangements govern relationship in different stages of production, distribution and sale of the same product.